Inside 2012's fundraising numbers(2)

Fundraising totals in 2012 seemed to belie the horror stories shared by many GPs searching for capital, as overall totals jumped from 2011. But the picture is more complex in emerging markets like Asia.

PEI’s Research & Analytics team recently released full-year fundraising figures showing that, despite the incredibly tough exercise raising capital has become for many managers, commitments globally increased by 10 percent over 2011.
The $264.9 billion total amassed in 2012 was the largest since 2008, when private equity funds managed to corral $511.8 billion. Certainly, 2012 totals can’t compare to the frothy fundraising environment leading up to 2008 – many fundraising insiders say we must accept they may never reach the same heights again – but most regions’ fundraising totals have continued to climb back up in subsequent years, with 2012 representing another solid step. 

Dig deeper into the numbers, however, and the picture becomes more mixed – for some emerging markets in particular. With the exception of funds targeting the Middle East and North Africa (MENA), which have experienced a steady decline in commitments since 2008, regions like Latin America, Central and Eastern Europe (CEE) and Asia-Pacific have had commitment levels wax and wane in the past five years. 2012 for both Asia-Pacific and Latin America were lacklustre, with commitments to Asia-Pacific managers down 26 percent and commitments to Latin America down 47 percent.

Aggregate capital raised ($bn) by geographic focus

 Geographic focus 2008  2009  2010  2011  2012 
Asia-Pacific  $54.0  $16.1  $38.2  $43.4  $32.1 
Central & Eastern Europe     $4.7 $1.8  $0.4  $1.1  $1.6 
Global $189.3 $83.8  $61.0  $65.9  $118.1 
Latin America $6.8  $3.3  $9.8  $11.2  $5.9 
MENA $10.4  $3.5  $3.6  $3.2 $1.4
North America $157.6  $84.5  $73.6 $71.9 $79.2 
Pan-Europe  $35.1  $3.7  $6.7  $13.3  $12.8 
Western Europe $53.9  $22.2  $21.0  $30.1  $13.9 
Total capital raised  $511.8 $219.0  $214.4  $240.0  $264.9 
Number of funds closed   721   476   571   525    457

Source: PEI Research & Analytics

Some of the lumpiness in figures could be chalked up to the effect that a handful of large fundraises in preceding years can have on smaller, emerging markets with less volume. “A few big funds can skew the numbers,” one emerging markets-based GP said during a recent meeting.

That’s easier to accept for markets like CEE, where by PEI’s count there are some 38 funds currently in the market targeting $10.7 billion, or Latin America, where 63 funds are raising $12.2 billion. But in Asia, the story is of a whole different magnitude. There are more Asia-Pacific-focused funds currently fundraising than in any other region, and aiming to raise more money than any other region: 471 funds are targeting a collective $249 billion. (That compares to 512 funds raising $190 billion in North America and 155 Western European funds raising $80 billion). It may mean that manager expectation in the region is overly optimistic, as firms look for capital that LPs, at least last year, were less willing to provide amid shifting market dynamics.
Similarly, funds dedicated to Western Europe failed to attract the kind of capital they have in past years and you could argue that $80 billion is an optimistic target. Western European-focused funds raised only $13.9 billion in 2012, compared to $30.1 billion in 2011. It is perhaps unsurprising given LPs’ nervousness around Europe’s volatility and sovereign debt issues. Scores of brand-name firms currently fundraising, such as Apax and Permira, are expected to raise smaller sums than in years past, with groups expressing frustration over the vast amounts of time and effort going towards fundraising rather than investing (Nordic Capital notably cited this as the reason to wrap up marketing efforts early on a lower-than-planned target). 

Globally focused funds, meanwhile, a category dominated by the veteran buyout firms turned asset management giants like Kohlberg Kravis Roberts, the Carlyle Group and The Blackstone Group, raised some $118.1 billion, up nearly 80 percent on the $65.9 billion raised in 2011. So perhaps the mega-fund isn’t nearing extinction anytime soon, after all. 

While the picture is mixed in certain geographies, overall, the numbers should give some comfort to managers braving the markets to raise funds, for they show investors are willing to increase support for the right strategies and managers. The real question is: will your fund pique LP interest?